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Globalization, Macroeconomic Performance, and Monetary Policy

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  • FREDERIC S. MISHKIN

Abstract

The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (i) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (ii) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (iii) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (iv) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes. Copyright (c) 2009 The Ohio State University.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): s1 (02)
Pages: 187-196

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:s1:p:187-196

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, 09.
  2. Kenneth Rogoff, 2003. "Globalization and global disinflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 45-78.
  3. Jon Faust & John H. Rogers & Shing-Yi B. Wang & Jonathan H. Wright, 2003. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," International Finance Discussion Papers 784, Board of Governors of the Federal Reserve System (U.S.).
  4. Christopher Erceg & Christopher Gust & David López-Salido, 2007. "The Transmission of Domestic Shocks in Open Economies," NBER Chapters, in: International Dimensions of Monetary Policy, pages 89-148 National Bureau of Economic Research, Inc.
  5. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
  6. Mark A. Wynne & Erasmus K. Kersting, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
  7. Roberts, John M, 2006. "Monetary Policy and Inflation Dynamics," MPRA Paper 812, University Library of Munich, Germany.
  8. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  9. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  10. Paul R. Bergin & Robert C. Feenstra & Gordon H. Hanson, 2007. "Outsourcing and Volatility," NBER Working Papers 13144, National Bureau of Economic Research, Inc.
  11. Luca Guerrieri & Christopher Gust & J. David L�pez-Salido, 2010. "International Competition and Inflation: A New Keynesian Perspective," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 247-80, October.
  12. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.).
  13. Francis E. Warnock & Veronica Cacdac Warnock, 2006. "International Capital Flows and U.S. Interest Rates," NBER Working Papers 12560, National Bureau of Economic Research, Inc.
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Cited by:
  1. David Carey, 2009. "Iceland: The Financial and Economic Crisis," OECD Economics Department Working Papers 725, OECD Publishing.
  2. Saglio, Sophie & López-Villavicencio, Antonia, 2012. "Introducing price-setting behaviour in the Phillips Curve: the role of nonlinearities," MPRA Paper 46646, University Library of Munich, Germany.
  3. Bloch, Laurence, 2012. "Product market regulation, trend inflation and inflation dynamics in the new Keynesian Phillips curve," Economic Modelling, Elsevier, vol. 29(5), pages 2058-2070.
  4. Ho-Chuan Huang & WenShwo Fang & Stephen M. Miller, 2012. "Banking Market Structure, Liquidity Needs, and Industrial Growth Volatility," Working papers 2012-26, University of Connecticut, Department of Economics.
  5. Ronny Mazzocchi, 2013. "Intertemporal Coordination Failure and Monetary Policy," DEM Discussion Papers 2013/15, Department of Economics and Management.
  6. Heiner Mikosch, 2012. "Sticky Prices, Competition and the Phillips Curve," KOF Working papers 11-294, KOF Swiss Economic Institute, ETH Zurich.
  7. Yeh, Chih-Chuan & Huang, Ho-Chuan (River) & Lin, Pei-Chien, 2013. "Financial structure on growth and volatility," Economic Modelling, Elsevier, vol. 35(C), pages 391-400.
  8. Francesco Ravazzolo & Philip Rothman, 2011. "Oil and US GDP: A Real-Time out-of Sample Examination," Working Papers 0004, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
  9. Alexander Mihailov & Fabio Rumler & Johann Scharler, 2011. "The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics," Open Economies Review, Springer, vol. 22(2), pages 317-337, April.
  10. Ho-Chuan (River) Huang & Stephen M. Miller, . "Does Financial Development Volatility Affect Industrial Growth Volatility?," Working Papers 1302, University of Nevada, Las Vegas , Department of Economics.
  11. Axel A Weber & Rafael Gerke & Andreas Worms, 2009. "Has the monetary transmission process in the euro area changed? Evidence vased on VAR estimates," BIS Working Papers 276, Bank for International Settlements.
  12. Muhammad Naveed Tahir, 2011. "Inflation Targeting, Exchange Rate and Financial Globalization," Working Papers 1130, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  13. Arpita Chatterjee, 2014. "Globalization and Monetary Policy Comovement: Evidence from G-7 Countries," Discussion Papers 2014-19, School of Economics, The University of New South Wales.
  14. Sudhanshu Kumar & Naveen Srinivasan & Muthiah Ramachandran, 2012. "A time-varying parameter model of inflation in India," Indian Growth and Development Review, Emerald Group Publishing, vol. 5(1), pages 25-50, April.
  15. Aron, Janine & Farrell, Greg & Muellbauer, John & Sinclair, Peter, 2010. "Exchange Rate Pass-through and Monetary Policy in South Africa," CEPR Discussion Papers 8153, C.E.P.R. Discussion Papers.
  16. Dudley Cooke, 2010. "Monetary Policy and Trade Globalization," Working Papers 042010, Hong Kong Institute for Monetary Research.
  17. Muhammad Naveed Tahir, 2011. "Inflation Targeting, Exchange Rate and Financial Globalization," Working Papers halshs-00646601, HAL.

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